The Supreme Court on Tuesday allowed telecom companies to clear their adjusted gross revenue (AGR) dues in 10 years, ending an extended industry-versus-government dispute on the matter. A Bench headed by Justice Arun Mishra, who’s due to retire on September 2, directed telcos to give an undertaking that they would pay the AGR dues in compliance with the order.
While the operators will have to make a 10 per cent upfront payment by March 31, 2021, the instalments will begin from April 1, 2021. Any default in payment will invite interest, penalty and contempt of court.
Telecom companies are expected to seek a review of the order. Abhishek Singhvi, who represented Airtel, said he did not think “this is permanent or even long-term. It is very likely that one or more of the entities involved in the matter will file review petitions. Different companies may have different reasons to seek review”. Saurav Kumar, Partner, IndusLaw, said “10 years is below market expectations and a review petition is surely an option for the telcos”.
Analysts described the court verdict as negative for debt-laden Vodafone Idea, which had sought a longer payment tenure. For others, including Bharti Airtel and Reliance Jio, the court offered some relief in its observation on spectrum sharing with companies undergoing insolvency proceedings such as Reliance Communications, Aircel and Videocon.
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The court said that the sale of spectrum should be decided by the National Company Law Tribunal (NCLT) under the insolvency and bankruptcy process, thereby giving a reprieve to Reliance Jio and Bharti Airtel, which are using the airwave of some of the bankrupt firms.
Earlier, the SC had observed that the onus of paying the AGR dues of the bankrupt telcos should be on those using their spectrum. Justice Mishra said, ‘’we have requested the NCLT to decide as per law’’.
Given that the court has allowed for a staggered payment over 10 years, without any additional security, is very positive for the telcos and they can live to fight another day, Kumar said.
The shorter payment tenure exerts pressure on the cash flows of both Vodafone Idea and Bharti Airtel, which still have to pay around Rs 41,000 crore and Rs 25,000 crore, respectively, in AGR-linked dues. Reliance Jio has already paid up its full AGR dues of Rs 195 crore. After the verdict, shares of Vodafone Idea dipped 15 per cent and those of Bharti Airtel rose 5.1 per cent on BSE.
None of the telecom companies commented on the verdict. This could lead to cash outflows of 22 per cent of Bharti's and 111 per cent of Vodafone-Idea's EBITDA, Jefferies Equity Research said. They would be required to increase their average revenue per user (ARPU) by 10-27 per cent to offset this, which in turn will make tariff hikes imminent, it pointed out.
"We expect telcos to hike tariff to recover the additional liabilities. Our analysis indicates the affected telcos need to hike their tariffs by Rs 20-30 per month to cover for the AGR dues alone,’’ the research report said.
Rating agency ICRA agreed, saying the relatively shorter payment timeframe exerts additional pressure on the cash flows and necessitates sizable ARPU increase. This can have an impact on the industry structure, it added.
According to calculations made by the Department of Telecommunications (DoT), Bharti Airtel owes the exchequer Rs 43,780 crore, of which the company has paid Rs 18,004 crore. Vodafone Idea has paid Rs 7,854 crore of its Rs 50,399 crore dues. Tata Teleservices has paid about Rs 4,197 crore and the balance is about Rs 12,601 crore.
The AGR liabilities will weigh on the credit profiles of telcos, said Nitesh Jain, director, Crisil Ratings. ‘’The impact on debt metrics will be a function of the extent of tariff hikes,’’ he pointed out.
Describing the verdict as disappointing, independent analyst Hemant Joshi said, ‘’it will put Vodafone Idea in a very difficult situation as its valuation will reduce, the customers will move away. It will also push the sector to a duopoly.’’